Currency pairs and quotes

Every forex trade is an exchange of one currency for another, so prices always come in pairs. Once you can read a quote and see where the spread sits, the rest of the market starts to make sense.

What a currency pair is

A currency pair is written as two three-letter codes separated by a slash, such as EUR/USD. The codes come from an international standard (ISO 4217): EUR is the euro, USD the US dollar, GBP the British pound, JPY the Japanese yen, CHF the Swiss franc, and so on.

• The base currency is the first one (EUR in EUR/USD).
• The quote currency is the second one (USD in EUR/USD).

The price tells you how many units of the quote currency you need to buy one unit of the base currency. If EUR/USD is quoted at 1.1000 (an example price), one euro costs 1.1000 US dollars.

Buying and selling a pair

When you buy a pair (go long), you buy the base currency and sell the quote currency at the same time. You profit if the base currency strengthens against the quote currency, so the price rises.

When you sell a pair (go short), you sell the base currency and buy the quote currency. You profit if the price falls.

You do not need to own euros to sell EUR/USD. With most retail brokers you are trading a contract that tracks the price, such as a CFD (contract for difference) or a rolling spot contract, rather than exchanging physical currency.

Majors, crosses and exotics

Pairs are usually grouped by how widely they are traded:

Majors tend to have the most liquidity (lots of buyers and sellers), which usually means tighter spreads. Exotics often have much wider spreads and can move sharply.

Bid, ask and spread

A broker shows two prices for every pair:

• The bid is the price at which you can sell.
• The ask (also called the offer) is the price at which you can buy.

The ask is higher than the bid. The difference between them is the spread, and it is a cost you pay on every trade, because you buy at the higher price and sell at the lower one.

Worked example: reading a quote

Suppose your platform shows EUR/USD as follows (example prices only):

• If you buy, you pay 1.1002.
• If you then closed the trade instantly, you would sell at the bid of 1.1000.
• The spread is 1.1002 − 1.1000 = 0.0002.

For most pairs, the fourth decimal place is one pip (you will meet pips properly in the next lesson), so this spread is 2 pips. On a standard-sized position of 100,000 euros, each pip is worth 10 US dollars, so the spread costs:

2 pips × 10 USD = 20 USD

That means a new trade starts slightly in the red. The price has to move 2 pips in your favour just to break even.

Yen pairs look different

Pairs quoted in Japanese yen use two decimal places as the main unit rather than four. If USD/JPY is quoted at 150.00 bid and 150.02 ask (example prices), one US dollar costs 150 yen, and the spread is 0.02, which for yen pairs is also 2 pips.

Why spreads change

Spreads are not fixed on most accounts. They usually widen:

• around major economic news releases, such as central bank decisions or employment data;
• during quiet hours, for example around the daily rollover when liquidity is thin;
• at the weekly open, when prices can gap (jump from one level to another with no trading in between);
• on less liquid pairs, such as exotics.

Some accounts charge a separate commission and offer a tighter raw spread instead. Either way, it is worth checking the total cost per trade rather than looking at the spread alone.

Key takeaways

• A pair shows how much of the quote currency buys one unit of the base currency.
• Buying a pair means buying the base and selling the quote; selling does the opposite.
• You buy at the ask and sell at the bid; the gap between them is the spread, a cost on every trade.
• Majors usually have tighter spreads than crosses and exotics, and spreads can widen sharply around news and quiet hours.